Wars kill far beyond the battlefields. A bomb can destroy a barn without causing casualties, but many could die from the lack of grain that was stored there. The invasion ordered by Vladimir Putin threatens to become a disgrace much greater than the one the Ukrainians are experiencing. “The war is hitting a global food system weakened by covid-19, climate change and an energy crisis,” says The Economist magazine. Ukrainian exports of grain and oilseeds are at a standstill and Russian exports are on track to be. Together, the two countries supply 12% of the calories the planet consumes.
Before the war, the global food situation was already worrying. The United Nations World Food Program (WFP) had warned that 2022 would be a very difficult year due to the drag of the pandemic crisis and the effects of droughts. China, the largest producer of wheat, has already announced that this harvest may be the worst in its history due to delayed rains. Extreme temperatures also hit India, the world’s second largest producer, hard. The same is true in the Horn of Africa and in the so-called “wheat belt” of the United States and the cereal region of France.
UN Secretary-General António Guterres warned this week that the coming months threaten “the specter of a global food shortage that could last for years.” And, obviously, the first victims of a situation like this are the poorest. Households in emerging economies spend 25% of their budget on food, and in sub-Saharan Africa it reaches 40%. In Egypt, bread provides 30% of all calories to the population. According to the WFP study, there are 250 million people who are on the verge of famine and another 1,600 million “at latent risk of being so”. If, as is likely, the war drags on and grain supplies from Russia and Ukraine continue at these levels, the worryingly rising inflation plaguing the world will become less of a problem.
In this context, the world’s attention is beginning to focus on the countries and regions that could supply this huge food shortage. And this is where Mercosur appears. Brazil, Argentina, Paraguay and Uruguay are the countries with excess capacity to replace those that the war placed outside world markets, especially wheat, corn, barley and sunflower oil. A unique opportunity for the growth of their economies and contain the resounding increase in poverty in the region. Of course this is not magic. It is extremely difficult to go on to produce 50% more from one harvest to another. South America is also affected by droughts and other effects of climate change. And all the countries in the region have their own internal political and economic difficulties. But it is still fresh in the memory of its inhabitants that a hundred years ago or a little more constituted precisely what is now required: to be the largest food producers in the world.
There are incentives for these countries that are also alarm sirens for them and those in need. The price of wheat, which had already risen 53% since the beginning of the year, rose a further 6% on May 16, after India said it was suspending exports due to an extreme heat wave. Until then, there were expectations that the harvest would be bountiful, the New Delhi government hoping that the rupee would strengthen on exports. When expectations about the volume of the harvest plummeted, the political turnaround occurred. “The acceleration of exports, encouraged by high prices abroad, raised fears of a shortage in the country and this prompted the move by the Modi government”explained the pool of investors Lafinure.
India is not alone. Another 26 countries are applying severe restrictions on food exports comprising 15% of calories marketed worldwide. In most cases these are total bans. But Ukraine and Russia constitute the lion’s share. supply 28% of globally traded wheat, 29% of barley, 15% of corn and 75% of sunflower oil. Between the two, they provide approximately half of the cereals imported by Lebanon and Tunisia; in the case of Libya and Egypt, the figure is two-thirds.
Ukrainian food exports provide the calories to feed 400 million people. But the part of last year’s grain harvest that is still in the country – some 25 million tons, much of it corn – is stuck by the Russian blockade of the ports in the south of the country, particularly Odessa, which is where almost all grain exports leave. They are moving part of these agricultural reserves in trucks to ports in Romania and Bulgaria, but it is much more expensive and insufficient. “Before the war, Ukraine exported about 5 million tons of grain per month,” explained Mykola Solskiy, the Ukrainian Minister of Agriculture. “Last month we managed to remove 1.1 million tons.”
And the perspective is that everything gets worse. The Ukrainian silos that were not destroyed by the fighting are full of corn and barley. At the end of June the new harvest begins and farmers have nowhere to store it. They also have fuel and labor shortages, not to mention the risks of carrying out work in the fields under bombardment. For its part, Russia is affected by the sanctions imposed by the West as a result of Putin’s decision to invade the neighboring country. Most of the pesticides used in agricultural production were bought in the European Union. It also has serious difficulties exporting through the Black Sea.
Despite rising grain prices, farmers in other parts of the world may not be able to make up the shortfall. One of the reasons is that prices are volatile. And what’s worse, profit margins are squeezed due to rising fertilizer and energy prices. These are the main costs for farmers and both markets are affected by sanctions and the fight for natural gas. “If farmers cut back on fertilizer use, global yields will be lower at just the wrong time”says The Economist.
It takes a world to feed a worldeconomists repeat. Nearly 80% of the global population lives in countries that are net food importers. More than 20% of the world’s calories, and more than 18% of cereals, cross at least one border on the way from the field to the stomach. And geopolitical changes profoundly modify this trade and the balance of power. University of Georgia historian Scott Reynolds Nelson recalls in his recently edited Oceans of Grain what At the beginning of the 19th century, Russia fed a large part of Europe and did so through the port of Odessa.. But after the Civil War in the United States, tons of wheat began to cross the Atlantic, causing its price to plummet. The grain of the great prairies of the Midwest caused, in turn, the rise of Germany and the decline of the Austro-Hungarian and Ottoman empires. and was a crucial factor in the outbreak of World War I and the Bolshevik revolution.
Now, it could be America’s time again. This time from the south. “Once again, Latin America is in a privileged position in the face of an upward economic cycle linked to raw materials, like the one that in the past represented gold, silver, sugar, coffee, cocoa, guano and rubber, among other primary goods. This time, minerals are added to food, especially those produced by the Mercosur countries”, writes Luis Esteban G. Manrique in the magazine Política Exterior.
Brazil is the fourth largest food exporter. Its agricultural industry today represents 8% of GDP. In 2022, it will produce 285 million tons of grain, six times more than in 1977. It is also the second largest supplier of beef to the United States, some 145 million kilos, a figure that will double this year. At the same time, it is the world’s largest exporter of coffee, sugar and poultry, and the third largest soybean.
According to the Rosario Stock Exchange, this year Argentina‘s exports will reach a record. In 2021, the country earned 38,049 million from exports thanks to five crops: soybeans, corn, wheat, barley and sunflower. This year they will add 41,053 million, 3,004 million more. Wheat exports alone will contribute 1,430 million more than last year. Los Grobo, the main agricultural group, estimates that with the necessary investments, Argentina could increase its current agricultural production by 40%.
This could lead one to think that Mercosur’s food production (Paraguay and Uruguay would also have extraordinary harvests) could alleviate global needs. But the experts immediately put a brake. Luis Esteban Manrique exposes these convincing data:
“Although the agro-industrial productivity of Mercosur is almost as high as that of the US Midwest, its soy growers pay 128 dollars to take a ton of grain to the ports, compared to 38 paid by US farmers. At the Santos container terminal, the largest Brazilian port, shipping a container costs about 2,215 dollars, compared to 580 on average in Shanghai. Brazil has 1.7 million kilometers of roads, but only 10% are paved because, among other things, investment in infrastructure barely accounts for 2% of GDP, compared to 10% in China. To reach Chinese levels, Brazil would have to raise that figure to 6% per year in the next 20 years.”
And the economist Daniel Artana warns that “Protectionist measures such as the 33% rate on exports, price controls and the chaotic exchange system make Argentine exports very difficult.” And his colleague Jeffrey Sachs wrote in an opinion column that “The real Argentina conspires against the possible Argentina due to its long tradition of rule changes and lack of predictability in foreign exchange, tax and labor matters.” Changes and increased exports are possible, but in the medium to long term.
The way out of the global food crisis in the next decade could come from the hand of greater production and marketing facilities by the Mercosur countries; but immediate relief would have to come with a ceasefire in Ukraine and the lifting of the Black Sea blockade. Some 25 million tons of corn and wheat, equivalent to the annual consumption of all the world’s least developed economies, are trapped there. “We have to agree on three countries: Russia has to allow Ukrainian shipping; Ukraine has to demine access to Odessa; and Turkey has to allow the passage of naval escorts through the Bosporus”, he opines in his editorial The Economist. A complicated equation that will require the will of many countries. And the basic solution is only possible if there is progress in a global consensus to create a new global economic order.
Ukraine could lose up to a third of its annual wheat harvest to the Russian invasion
War, production and world trade: according to The Economist, the world is on the brink of a food catastrophe